Confused Between IDCW and Growth Options? If you’re wondering whether to choose the Growth or IDCW (Income Distribution cum Withdrawal) option while investing in mutual funds, you’re not alone. Many new investors face this dilemma. These two options are available under most mutual fund schemes and understanding how they work is crucial for making informed investment decisions.
Table of Contents
In this guide, we’ll break down both options so you can confidently decide which aligns better with your financial goals.
What is the Growth Option?
The Growth option is where the mutual fund reinvests all the profits it earns—whether it’s from dividends, bond interest, or capital gains. These profits are not paid out to investors. Instead, they help the Net Asset Value (NAV) of the fund grow over time.
This means:
- No cash payouts during the investment period.
- The value of your investment increases due to compounding.
- Ideal for long-term wealth creation.
What is the IDCW Option?
The IDCW option—formerly called the Dividend option—is where profits earned by the mutual fund are distributed to investors at regular intervals (monthly, quarterly, or yearly). SEBI renamed it to “IDCW” to clarify that the payout includes a withdrawal from your capital as well.
This means:
- You receive periodic income.
- Every payout reduces the NAV.
- Not ideal if your goal is long-term capital
Remember, IDCW payouts reduce the fund’s NAV because the profit (and a portion of capital) is distributed rather than reinvested.
Growth vs IDCW: Key Differences
The primary difference lies in what happens to the profits made by the mutual fund:
| Aspect | Growth Option | IDCW Option |
|---|---|---|
| Profit Handling | Reinvested in the fund | Distributed to investor |
| NAV Movement | Increases due to reinvestment | Falls after each payout |
| Compounding Effect | Strong compounding | Weaker due to payout |
| Suitable For | Long-term growth | Regular income |
| Taxation | Capital gains on withdrawal | Taxed as income |
Visual Example of Growth vs IDCW Performance
| Particulars | IDCW Plan | Growth Plan |
|---|---|---|
| NAV on 1st April 2023 | 100 | 100 |
| Amount Invested | 50,000 | 50,000 |
| Number of Units Bought | 500 | 500 |
| NAV on 31st March 2024 | 130 | 130 |
| Dividend Declared | 30 | 0 |
| Dividend Received | 30 × 500 = 15,000 | 0 |
| NAV (Post Dividend) | 130 − 30 = 100 | 130 |
| Units Issued Against Dividend | 15,000 ÷ 130 = 115.38 | 0 |
| Total Units | 500 − 115.38 = 384.62 | 500 |
| Value of Investment | 384.62 × 100 = 38,462 | 130 × 500 = 65,000 |
| Particulars | IDCW Plan | Growth Plan |
|---|---|---|
| Previous NAV | 100 | 100 |
| Total Units Bought | 500 | 500 |
| Value of Investment | 50,000 | 50,000 |
| Current NAV | 100 | 130 |
| Total Units | 384.62 | 500 |
| Value of Investment | 38,462 | 65,000 |
| Dividend Received | 15,000 | 0 |
| Total Value + Dividend | 53,462 | 65,000 |
As shown in the table above, while both plans start with the same NAV and investment amount, the final investment value under the Growth plan is higher because the profits remain invested. In contrast, the IDCW plan’s value is lower due to regular withdrawals.
Which Option Should You Choose?
Choose the Growth option if your goal is long-term wealth creation and you don’t need regular payouts. This plan allows your money to grow steadily through the power of compounding.
Opt for the IDCW option only if you need periodic income, such as during retirement or when creating an income stream from your portfolio.
However, also consider taxation:
Growth plans are taxed as capital gains based on the duration and type of fund.
IDCW payouts are added to your income and taxed as per your income tax slab.
Can You Switch Between Growth and IDCW?
Yes, switching is allowed, but it is treated as:
- A redemption from one plan
- A fresh purchase in the other
This can attract exit loads and capital gains taxes, so it’s wise to evaluate the cost and benefit before making the switch.
Final Thoughts:
Mutual funds are powerful tools for building wealth—but only when you choose the right option. IDCW might look appealing because of regular income, but Growth plans generally offer better long-term returns.
So, next time you invest, ask yourself: Do I want steady growth or periodic income?
Choose the option that fits your goals—and not just what sounds attractive today.
Frequently Asked Questions (FAQ)
1. What is the Growth Option in Mutual Funds?
The Growth option reinvests all profits earned by the fund instead of paying them out to investors. Over time, these reinvested profits help the Net Asset Value (NAV) rise, making it ideal for long-term wealth creation. No cash payouts are made during the investment period.
2. What is the IDCW Option in Mutual Funds?
IDCW (Income Distribution cum Capital Withdrawal), formerly called the Dividend option, distributes profits to investors at regular intervals (monthly, quarterly, or yearly). Each payout reduces the NAV since profits and part of the capital are paid out instead of reinvested.
3. What are the Key Differences Between Growth and IDCW?
Growth Option reinvests profits, helping NAV grow over time, while IDCW Option provides periodic payouts.
Growth is suitable for wealth building, whereas IDCW is better for regular income needs.
NAV in Growth plans tends to be higher, while IDCW NAV decreases after payouts.
Which Option Should You Choose?
Choose Growth if your goal is long-term wealth creation and you don’t need regular payouts.
Choose IDCW if you need periodic income, such as during retirement.
Also, note taxation: Growth plans are taxed as capital gains, while IDCW payouts are taxed as per your income slab.
5. Can You Switch Between Growth and IDCW?
Yes. Switching is allowed but treated as redemption from one plan and a new purchase in another. This may attract exit loads and capital gains tax, so evaluate the costs before switching.
6. Which Option is Better for Beginners?
Beginners are usually advised to choose Growth plans because they maximize long-term wealth through compounding. IDCW can be considered later if you need steady income.
📖 Further Reading:
Explore more on this topic in our Mutual Fund Basic guide.
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